With so many potential pitfalls lying in wait for the inexperienced pre-foreclosure investor, what are the critical real estate investing factors that need to be accounted for at all time?

The Location: Buying Investment Property In A High Risk Neighborhood

We’ve all heard the real estate investing mantra, location, location, location.  Experienced pre-foreclosure investors can make many locations work in their favor. 

A good location will produce stable and predictable outcomes for you as an investor.  Property investors do not usually buy investment property in exclusive neighborhoods.

Most investment properties (for rental purposes) are acquired in the middle class, working middle class and blue collar sections of town. Property investors know that the risks go down when you buy investment property in these neighborhoods.

If you are new to pre-foreclosure investing, listen to this advice closely. Don’t even consider buying investment property in high crime areas.  If there’s trash all over with young men just standing around during the middle of day, do not buy investment properties in these neighborhoods.

Even if you can buy a three bedroom two bath house for $10,000, you will only be able to rent to high maintenance tenants. And if you’re thinking about selling it, forget about it. Nobody in their right mind who could qualify for a loan would want to live there.

Pre-foreclosure investing can be very forgiving if you stay in the game long enough. If you fail to follow this investment advice, you’re going to have some really big problems. When it comes to pre foreclosure investing, stay out of the high risk areas.

The Price: Paying Too Much For An Investment Property

I think by far, the most difficult real estate investing mistake to overcome is paying too much for a piece of investment property. And here’s my logic on this.

No matter if the pre-foreclosure investor is planning to flip or rent out the investment property, he must know (in advance) how much the property will be worth in its fair market condition (after repairs).

If the property investor does not know the fair market value of the investment property, how will he know what he can afford to pay in order for the investment to make sense?

If you pay too much for an investment property, you will be working for free or even at a loss for that matter.

Even when you rent out one of these investment properties, they don’t cash flow. Which means the rental income is less than your operating expenses.

When this happens, you then have an alligator on your hands. And alligators need to eat.

If you’re going to successfully invest in pre-foreclosures, you have to know the numbers. As a pre-foreclosure investor, there is no way around this.

The Exit: Effective Pre-Foreclosure Investors Know Their Exit Strategy

Property investing can be thought of as a story that has a beginning, middle and an ending. Effective property investors know what the ending of each property investing story will be.  Knowing the end of the property investing story makes a pre-foreclosure investor very effective.

No matter if you’re investing in single family houses or apartment buildings. You must know your exit strategy before you put a nickel down.

Effective pre-foreclosure investors know what comparable houses are selling for in the neighborhood if the exit strategy is to sell (flip) the investment property to a retail buyer.

If you’re going to rent the investment property out for monthly cash flow and long term capital appreciation, the property investor must have a firm grasp on what the rental rates are in the area.

The Drivers: Pre-Foreclosure Investors Must Be Aware Of The Major Economic Drivers In The Area

The biggest economic driver in any real estate market is job growth. If the employment outlook is positive, more jobs will be created and more people will move into that market. You will have more companies expanding into these markets as well.

On the flip side, if job growth is stagnant or even declining, the real estate market will take a big hit – just look at Detroit.

Experienced property investors know that in order to sell houses and rent apartment buildings people need to be gainfully employed. If people don’t have solid employment opportunities, the retail and rental markets will be adversely affected.

There are many other economic factors that affect the real estate investing market, but job growth and employment are the biggest drivers.

If you want to improve your skills as a pre-foreclosure investor, make sure you consider each of these critical factors on every real estate investment.